OPEC Cycles and Crude Oil Market Dynamics

This presentation given at the Centre for Strategic and International Studies (CSIS) discusses OPEC output cycles over the period 2008-2018 and how they have shaped the oil market outlook. It also outlines the main factors behind the rebalancing of the oil market and analyses the main trends shaping oil price outcomes in the short-term. The presentation concludes with an analysis of the balance of risks facing the oil market. It argues that to predict the oil price will rise in the face of a supply shock is not particularly inspiring. Other things being equal, a negative supply shock causes the supply curve to shift left and the oil price to increase (the magnitude of the price increase depending on multiple factors such as the size of the supply shock, the elasticity of the supply curve, available spare capacity, and stock levels at the time of the negative supply shock). More important is to predict what caused the shock in the first place. For most analysts that have been predicting a sharp rise in the oil price, the big story has been an investment-supply one: Deep cuts in investment means that there are very few projects in the pipeline and in a low-price environment decline rates will accelerate constraining supply further (i.e. the shock is generated within the system or is endogenously-driven). In contrast, the current shock is an exogenous one. This raises the question: Where would oil prices and OPEC+ output be without the Iran sanctions?